Preview 1
With the city lockdowns in China, the global supply chain ground to a halt. Millions of shipping containers sat stacked at port with no workers to handle them. Hyundai Motor in Korea had to shut down production as its Chinese supplier was unable to ship wiring harness to Hyundai’s factory. Wuhan hosts an automotive industry cluster with car factories and hundreds of manufacturers producing automotive accessories and components, contributing 10% of China’s automotive production. Zhengzhou, 500km from Wuhan, is the largest production base for the Apple iPhone.
As of year-end 2019, there were 800 publicly listed electronics firms in Taiwan with an aggregated revenue of US$712.9 billion, of which US$409.8 billion was contributed by a host of companies, including Foxconn, Pegatron, Compal, Quanta, Wistron and Inventec, which make handsets, computers and other end products. Their production bases are largely located in China, which manufacture 200 million iPhones, 80% of the world's notebooks and 90% of the servers supplied to markets worldwide in addition to TVs, game consoles, portable IT devices and a slew of innovative gadgets.
Furthermore, Taiwan’s semiconductor industry output value reached US$99 billion to set a new record in 2019. Looking to follow Taiwan’s success, China aggressively recruits Taiwan’s experienced engineers and professional managers. Billions of US dollars were invested into the semiconductor industry as part of the Big Fund initiative. This has also attracted Taiwanese people to work or invest in China and quite many of them are based in Wuhan and Nanjing, two of the Chinese cities hit hard by COVID-19.
Taking the world by surprise, COVID-19 became the black swan event for the Made in China 2025 initiative. Will China’s Big Fund investment toward its semiconductor industry hold its course amid COVID-19 impact? Will China’s display panel industry that used to heavily rely on state funding be able to maintain its investment momentum after the pandemic passes? Foreign managers or engineers who originally planned to relocate to China have changed their minds in view of the COVID-19 situation. The year 2020 will mark a pivot point for industrial developments and supply chain structure changes, especially for the semiconductor and display panel sectors.
Taiwanese manufacturers of components including touch screens, connectors and PCBs mostly have production bases in China. Also with support from Taiwan-based distributors such as WPG Holdings and Synnex, Taiwan-based firms play a critical part in China’s electronics sector. Will they further consolidate their core investments or diversify their production strategy in the post-pandemic world?
Preview 2
Based on an assumption that the COVID-19 pandemic will begin to ease in late June, we project that China’s market demand will fall 30% as commercial activities get halted and consumers put off buying products. OEM production of exported products is estimated to decline 20% as workers are unable to return to their jobs and the global economy goes into recession. The estimates are the results of a survey on the changes to the whole supply chain structure based on the above-mentioned assumption. Of course, if the pandemic continues beyond the end of June, with Western Europe and the US remaining in a state of emergency, the decline in supply chain production and consumer spending will further widen.
Aside from post-pandemic economic outlook, we are even more concerned about what might happen to China and the entire high-tech industry in 2021 and beyond. The second half of this book takes a look at possible scenarios including how the semiconductor and display panel industries may plan to shift their production bases and how China may sustain growth and keep driving its high-tech industry forward.
If COVID-19 only ends this summer, the impact to China will be short-term and its industries will be able to recover within a year. This is likely the best-case scenario. However, if the pandemic drags on, the road to recovery for China will be a much longer one. Then, what measures will China take to stay the course and achieve its original goals? Facing ever increasing pressure both at home and abroad, China may choose to stay low for recuperation, which may take at least 10 years. In this case, the world order will undergo significant changes. The great rejuvenation of the Chinese nation will not happen until 2030. This is the peaceful evolution scenario. However, if Chinese leaders decide to divert the pressure by picking fights abroad, what will become of Taiwan?
How does Taiwan respond to the changes in the world with a different mindset? Are Taiwanese people prepared for corresponding changes that have to be made in national strategy and investment planning? I have described managers in the electronics industry as outsiders in society. People in the electronics industry work hard to produce all kinds of products. They care about fulfilling customers' orders. Some of them who are a bit more aware of what happens outside their comfort zone may pay some attention to stock market changes. Words like "efficiency," "cost" and "profit" strike a cord with them. They are often out of tune with society but feel right at home with a party of friends or business associates working in the same field. Many people in the electronics industry are high-status and high-income professionals but just live their life in their low-key way.
As times change, we are transitioning from handling OEM orders for TVs, notebooks and smartphones to realizing the fact that digital transformation and information technologies are everywhere. The saying “Software is eating the world, but AI is going to eat software” has gone viral among Silicon Valley business leaders. However, unicorns that have gone public around 2020, such as Uber, Lyft and WeWork, are seeing their market value plunging. Without application scenarios and operation models to test its power, AI may be just all hype and disconnected from reality.
